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Cantor's dethroning: What it means for the market

I strive to avoid political opining when at all possible. But the upset of House Majority Leader Eric Cantor, which marked the first time a majority leader has ever lost a primary election, is one of those developments that must be addressed when evaluating the investment landscape.

Why is this development so important?

One reason is that the market does not like uncertainty. Cantor was the odds-on favorite to become the next Speaker of the House. The sudden dethroning of such a high-profile and influential politician introduces a degree of uncertainty about Congressional leadership. But the bigger issue is that Cantor's loss represents the continued failure of efforts to compromise in Congress. In the words of Wall Street Journal reporter Patrick O'Connor, Cantor was "widely viewed as a bridge between the GOP's establishment and tea party wings." Without this "bridge" we could be faced with more political polarization, inertia and inaction.

House Majority Leader Eric Cantor, R-Va.
Tom Williams | CQ Roll Call | Getty Images
House Majority Leader Eric Cantor, R-Va.

Brat: Cantor defeat 'was basically a miracle'

The historical axiom with regard to politics and investing has always been that gridlock is good. The rationale was that a sharply divided Congress would be unable to agree on sweeping changes that might dramatically alter the status quo. In times of relative peace and prosperity, the maintenance of the status quo may have been a reasonable aspiration. The problem now, however, is that the country faces a number of daunting challenges that demand action.

Massive regulatory changes are acting as a tax on companies operating in the financial, energy and other sectors. Controversy over the once-routine raising of the debt ceiling seems to have become the norm. Geopolitical concerns, including the Syrian civil war, Russia's renewed aggression, and continued threats of terrorism, must be addressed. The Affordable Care Act and its implementation still have plenty of question marks. The threat of climate change continues to loom. Our immigration policies must be more clearly defined.

Read MoreCantor's loss a bad omen for moderates

And perhaps most importantly, we must address the long-term structural deficits that are driven by unsustainable entitlement spending. In sum, there is a lot of work to be done by politicians, and so gridlock is probably not the best situation for the country or the markets. When viewed in this light, the lingering tendency for voters to elect candidates with extremist views is not constructive.

Goldman Sachs CEO Lloyd Blankfein was interviewed on CNBC this morning. After calling Majority Leader Cantor a "sensible politician" for his efforts to both moderate his views within the Republican Party as well as to reach across the aisle, Blankfein said "Elected representatives are sent to Washington to compromise, not to never compromise." I agree whole-heartedly. Cantor's loss in Virginia symbolizes the failure of compromise.

Read MoreBlankfein: Complacency in stocks leads to shocks

Perhaps more important than Cantor's loss is the message that his loss sends to other politicians and hopefuls. This message is that any efforts to compromise can quite possibly result in political suicide. How are we to solve problems if nobody's willing to concede anything during the process of negotiation?

So it is true that the markets dislike change and uncertainty. Cantor's loss could make it less likely that we see sweeping policy changes in the near term. Some will see this as a good thing. But our view is that we need politicians who are able to solve our daunting challenges. We had been hopeful that following 12-14 years of wide and violent swings in the political pendulum that the voices of moderation would soon win the day. It appears that we have pushed that day further into the future.

Commentary by Michael K. Farr, president of Farr, Miller & Washington and a CNBC contributor.

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